1. Great Fender, which uses a standard cost accounting system, manufactured 20,000 boat fenders during 2014, using 144,000 square feet of extruded vinyl purchased at $1.05 per square foot. Production required 420 direct labor hours that cost $13.50 per hour. The direct materials standard was 7 square feet of vinyl per fender, at a standard cost of $1.10 per square foot. The labor standard was 0.025 direct labor hour per fender, at a standard cost of $12.50 per hour.
Compute the cost and efficiency variances for direct materials and direct labor.
Does the pattern of variance suggest Great Fender's managers have been making trade-offs? Explain.
2. Review the data from Great Fender given in Exercise. Consider the following additional information:
Static budget variable overhead $ 5,500
Static budget fixed overhead $ 22,000
Static budget direct labor hours 550 hours
Static budget number of units 22,000 units
Great Fender allocates manufacturing overhead to production based on standard direct labor hours. Great Fender reported the following actual results for 2014: actual variable overhead, $4,950; actual fixed overhead, $23,000.
Requirements
1. Compute the overhead variances for the year: variable overhead cost variance, variable overhead efficiency variance, fixed overhead cost variance, and fixed overhead volume variance.
2. Explain why the variances are favorable or unfavorable.